Mario, Mario, Quite Contrary-O
How Does Your QE Go?
Takeaway: We are adding Hologic to Investing Ideas.
Note: The excerpt below was written earlier this morning by Hedgeye CEO Keith McCullough. Stay tuned for further updates from our Healthcare sector head Tom Tobin.
Looking for names that my Research Team likes that are:
1. Bullish intermediate-term TREND duration
2. Immediate-term TRADE oversold within their bullish TREND
Hologic is a name Tom Tobin has liked for a while, but he's also becoming the axe in the name with regards to monitoring the company's key revenue factors using his proprietary process.
In what Tom calls his 3D TOMO Tracker Update (Institutional Research product) of US facilities currently offering 3D Tomosynthesis, month-to-date December placements signaled a break-out quarter after a sharp acceleration in October and slight correction to a still very high rate in November.
We believe we are seeing a sustained acceleration in placements that will likely drive upside to Breast Health throughout FY2015.
Takeaway: You can't afford to miss our summary of consensus across the investment community as it relates to formulating your big macro bets in 2015.
THEMATIC INVESTMENT CONCLUSIONS
Long Ideas/Overweight Recommendations
Short Ideas/Underweight Recommendations
QUANT SIGNALS & RESEARCH CONTEXT
What Will the Big Macro Surprises Be in 2015?: In our 12/31 Early Look note, which was penned by my colleague Daryl Jones, we discussed how investors tend to overweight the recent past in their predictions of outcomes over longer durations. We’re all guilty of it and, quite frankly, it would be nearly impossible not to based on how our brains are wired to interpret and analyze signals, according to Dr. Daniel Kahneman, the world’s foremost authority on behavioral heuristics.
So what does Bloomberg consensus think will happen in 2015?
Looking to the U.S. economy:
Looking to the global economy:
Looking to the Eurozone economy:
Looking to the Japanese economy:
Looking to the Chinese economy:
Key takeaways from current sell-side consensus:
We don’t do wire-to-wire annual predictions, but here’s how we currently stand with respect to the aforementioned takeaways (we can and will change our minds throughout the year, as we did nailing the move from #InflationAccelerating in 1H15 to #Quad4 deflation in 2H15):
Obviously the sell-side forms only one part of the Consensus Macro equation. Consensus on the buy-side, which, as an industry, is becoming increasingly less differentiated from a positioning perspective, can be roughly tracked via the speculative net length of futures and options contracts, which is reported weekly by the CFTC.
A positive reading indicates a net LONG position, while a negative reading indicates a net SHORT position. Perhaps more important than the absolute positioning is how the position is tracking over time, as such deltas can indicate the presence of marginal investors crowding into or blowing out of positions. To that tune, the following chart shows the net length of 20 key macro markets, ranking them according to their TTM Z-Scores:
Key takeaways from current buy-side consensus:
From a process perspective, it’s worth noting that we typically begin to fade the Consensus Macro lean whenever a particular index or market’s speculative net length reaches +/- 2 SIGMA. That’s not to say we will automatically adopt a variant view with respect to the intermediate-to-long term, but the immediate-term counter-trend reversals tend to be epic when the market is leaning too heavily in one direction or the other. Fading Beta in our Real-Time Alerts product is one of the things we do best @Hedgeye.
All told, we hope this snapshot of consensus is helpful in formulating your opinions on where the best places to source your non-consensus macro bets are in 2015. Consensus is right more often than any of us are paid to admit, but we all know the big money is typically made on the other side of the trade.
From the only macro team whose non-consensus forecasts got the direction of interest rates right in both 2013 and 2014, best of luck to you in 2015!
***CLICK HERE to download the full TACRM presentation.***
TRACKING OUR ACTIVE MACRO THEMES
#Quad4 (introduced 10/2/14): Our models are forecasting a continued slowing in the pace of domestic economic growth, as well as a further deceleration in inflation here in Q4. The confluence of these two events is likely to perpetuate a rise in volatility across asset classes as broad-based expectations for a robust economic recovery and tighter monetary policy are met with bearish data that is counter to the consensus narrative.
#EuropeSlowing (introduced 10/2/14): Is ECB President Mario Draghi Europe's savior? Despite his ability to wield a QE fire hose, our view is that inflation via currency debasement does not produce sustainable economic growth. We believe select member states will struggle to implement appropriate structural reforms and fiscal management to induce real growth.
Moscow, We Have a Problem (12/16)
#Bubbles (introduced 10/2/14): The current economic cycle is cresting and the confluence of policy-induced yield-chasing and late-cycle speculation is inflating spread risk across asset classes. The clock is ticking on the value proposition of the latest policy to inflate as the prices many investors are paying for financial assets is significantly higher than the value they are receiving in return.
Best of luck out there,
Associate: Macro Team
About the Hedgeye Macro Playbook
The Hedgeye Macro Playbook aspires to present investors with the robust quantitative signals, well-researched investment themes and actionable ETF recommendations required to dynamically allocate assets and front-run regime changes across global financial markets. The securities highlighted above represent our top ten investment recommendations based on our active macro themes, which themselves stem from our proprietary four-quadrant Growth/Inflation/Policy (GIP) framework. The securities are ranked according to our calculus of the immediate-term risk/reward of going long or short at the prior closing price, which itself is based on our proprietary analysis of price, volume and volatility trends. Effectively, it is a dynamic ranking of the order in which we’d buy or sell the securities today – keeping in mind that we have equal conviction in each security from an intermediate-term absolute return perspective.
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.
ECB President Mario Draghi once again is talking down the EUR/USD – this time in a New Year’s interview with the German newspaper Handelsblatt that further hints that the Bank may issue QE.
While the market is selling the EUR/USD to levels not seen since 2010, Draghi’s timing of QE still remains vague and undecided. He states that the risk to price stability is higher now than 6 months ago– but is this a surprise? NO: the ECB has been unable to revert deflation over the past 18 months and the massive move in energy prices (oil is down -39% over the last 3 months) has completely caught the Bank’s economic and inflation predictions off guard.
As we approach the ECB’s next policy meeting on 1/22, our call hasn’t changed. We expect Draghi to continue to talk down the EUR/USD (etf FXE) through the prospect of QE. The cross remains broken across our TRADE, TREND, and TAIL durations.
On QE timing, we continue to expect louder opposition from the Germans (in particular) against QE which may well extend out the prospect of a potential issuance (late last year the Bank target a Q1 arrival). Just today we received comments from a senior member of Merkel's party, Michael Fuchs, who warned against the ECB pouring money into struggling Eurozone states through bond purchases as this would reduce pressure on them to enact much-needed reforms.
We continue to warn not to confuse Draghi’s policy to inflate with economic growth and believe our Q4 macro theme of #EuropeSlowing remains intact. Eurozone PMI Manufacturing figures for December were released today –they are ugly on an absolute and rate of change terms basis (see chart and table below).
Based on our proprietary GIP model, we expect slowing in the region until at least Q3 of this year, and continue to call for a negative divergence from France (etf EWQ) that delivered a PMI of 47.5 and remains anchored well below the 50 line indicating contraction.
Happy New Year and enjoy the weekend!
Editor's note: This is a brief excerpt from Hedgeye CEO Keith McCullough's research this morning. For more information on how you can subscribe click here.
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If you ask the global manufacturing PMI data for December, the world slowed. Not only did the U.S. Markit PMI readings slow, but both China and all of Europe was either flat to down month over month vs. November.
Global #GrowthSlowing + #Deflation keeps the Long Bond (TLT) my top Big Macro Long idea right now.
Tickers: CZR, LVS, PENN, GLPI, HLT, HOT, BEE
Macau December GGR – December GGR totaled MOP22.607 (HK$ 23.285, US$ 2.9150 billion, -30.4% YoY.
Takeaway: December results were in line with our expectations
SJM- announced a 5% pay raise for all its employees, effective Jan 1. SJM announced internally that it would consolidate basic pay and tips, known as tea money, for the purposes of contributions to the provident fund. SJM also announced an increase in other perks enjoyed by staff. The Macau government has already announced a 6.8% pay rise for 2015 for public sector workers.
Takeaway: 5% may not be enough.
CZR – A consortium including a unit of CZR made a conditional deal to acquire the land for a casino project at Incheon, in South Korea, for just under US$95.9 million. The plot has an area of approximately 89,170 square meters. The grouping – known as LOCZ Korea Corp – is planning a multi-phase casino project on a site close to Seoul’s Incheon International Airport. The casino will serve foreigners. In October, Steven Tight, president international development for Caesars Entertainment, said the goal was to start construction on the project in July 2015.
GLPI & PENN – Hollywood Casino Columbus is adding an Asian noodle restaurant to diversify dining options and cater to a large base of Asian-American gamblers. Zen, as it'll be called, should open by the Chinese New Year on Feb. 19.
Takeaway: Should be additive.
PENN – Hollywood racino at Mahoning Valley in Ohio closed its inaugural meet with its best one-day handle yet of $1.103 million. That compares to the meet’s daily average of $614,716.
Takeaway: Decent performance from its racing business. The casino has averaged $7.8m in revenues the last two months.
GTECH - signed a 6-yr draw-based/instant-ticket system contract with Mexico's Pronosticos Para La Asistencia Publica for a minimum of 11,000 draw-based lottery terminals, a communications network, as well as additional lottery products and ongoing services. The contract is expected to commence in September 2015. GTECH expects to receive more than $130 million in revenues over the six-year period.
Takeaway: Another contract from a long-term GTECH customer
LVS – A company led by a Taiwan businessman, who argues that in 2001 he proposed being senior partner in a joint venture with Las Vegas Sands Corp to get a Macau gaming license, has voluntarily withdrawn a lawsuit on the issue previously filed on July 9 with the U.S. District Court in Nevada. The lawsuit against Las Vegas Sands was claiming intellectual ownership of as much as 72.5% of the US$20 billion-plus profits the plaintiff estimated the gaming operator has made in Macau since the award of its gaming rights there in 2002.
At a minimum, the suit from Asian American Entertainment Corp Ltd (AAECL), a Macau-registered company, asked for US$5 billion from Las Vegas Sands, with pre-judgement and post-judgement interest.
Takeaway: The end to another distracting litigation event - a welcomed relief for the senior management team who is focused on returning growth to the top-line.
242.HK – Shun Tak Holdings Ltd has indicated that the start of work on its Harbour Mile project may be delayed until 2017 at the earliest. The waterside project is meant to link One Central and the Macau Tower, both of which belong to Shun Tak, either in whole or part. Shun Tak indicated its purchase of land for the project was delayed two years until the end of next year, while the government makes up its mind about its urban master plan. The company intends to put housing, shops and a hotel on the land.
HLT – During Q4 2014 Hilton opened 53 new hotels, including 34 U.S. properties.
Takeaway: The 53 new openings was less than our modeled 75 new openings, it would appear many openings slipped to Q1 2015.
HOT – During Q4 2014, Starwood Hotels opened 32 new hotels, including 9 U.S. properties.
Takeaway: The 32 new openings was better than our forecast of 26 new opening during Q4 2014.
BEE – announced the company closed a $225 million limited recourse loan secured by the JW Marriott Essex House hotel originated by Metropolitan Life Insurance Company. The new financing replaces the $186 million financing previously encumbering the property. Under the terms of the loan agreement, the loan bears interest at a floating rate of LIBOR plus 295 basis points and has a three-year initial term with two, one-year extension options available to the venture upon satisfying certain financial and other conditions.
Macau Unemployment Remains Very Low & Gaming Related Jobs Increase – Nov unemployment remained steady at 1.7%. The number working in gaming rose by 1.6% to 85,900 and the number working in construction rose by 1.9% to 56,800.
Takeaway: Despite falling gaming revenues, gaming related employment increased during November.
Macau Property Values Drop in November – The average price of housing in Macau fell to MOP91,731 (US$11,483) per square meter in November, 13.7% less than the month before. The Financial Services Bureau data indicated the decrease was due to the average prices of homes on the peninsula and Coloane decreasing. The average price of homes on Taipa increased.
Takeaway: Given the slowdown in gaming revenue, we believe Macau will experience additional property value declines.
Sochi Russia Gaming – Sochi mayor Anatoliy Pakhomov has said that the Sochi gambling zone will open its doors in May 2015. He also expressed confidence that an open sky regime coupled with a possible 72-hour visa-free transit and the zone's location in Krasnaya Polyana will attract more tourists to Sochi.
Takeaway: While the gaming zone will be open, thus far there's been no discussion of which gaming operators hope to open casinos in Sochi or if the casinos will be government run.
Ukraine Approves Casinos & Online Gaming – Ukraine will allow casinos and online gambling under a new austerity budget passed to help the government raise capital. The budget, which shrinks social spending and will boost the price of imports, is designed to reduce Ukraine’s budget deficit to 3.7% and spur growth in 2016. Ukraine banned gambling in 2009.
Washington slots - Twenty seven of Washington’s 29 Indian tribes have agreed to new gaming compacts that allow more slot machines. Casinos will be allowed 1,075 gaming machines, up from 975.
Takeaway: More slot sales for Washington
China December PMI – The final reading of the Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 49.6 during December down from 50 in November, and compared with the Dec. 16 reading of 49.5.
Singapore GDP Slowed in 2014 – Singapore’s economic growth cooled in 2014 and the nation will experience slower expansion than it’s used to, Prime Minister Lee Hsien Loong said. Gross domestic product rose 2.8% this year, Lee, 62, said in his New Year message. That compares with a November forecast of about 3%, and an expansion of 3.9% in 2013.
Hedgeye Macro Team remains negative Europe, their bottom-up, qualitative analysis (Growth/Inflation/Policy framework) indicates that the Eurozone is setting up to enter the ugly Quad4 in Q4 (equating to growth decelerates and inflation decelerates) = Europe Slowing.
Takeaway: European pricing has been a tailwind for CCL and RCL but a negative pivot here looks increasingly likely in 2015.
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